Court Actions and Boosting Domestic Revenue Mobilization in Uganda

Transcription

1 Court Actions and Boosting Domestic Revenue Mobilization in Uganda SSERUNJOGI BRIAN ECONOMIC POLICY RESEARCH CENTRE (EPRC), MAKERERE UNIVERSITY, KAMPALA, UGANDA Public Finance and Public Management in Africa conference October, 2018 Accra, Ghana

2 BACKGROUND vtax dispute resolution is a central component of the operation of any modern tax system around the world (Walpole and Binh, 2010). vtaxpayers ability to access an independent, efficient and impartial tax dispute resolution process is important to;. v Improve voluntary tax compliance by boosting tax morale; vreduces the costs of resolving disputes vminimizes the amount of government revenue trapped in tax disputes vit fulfils the principle of social justice which demands that everyone is treated equally by the law. vsince the 1990s, Uganda undertook administration, legislative and policy reforms geared towards increasing domestic revenue collection(afdb, 2010; Ayoki et al, 2005). vamong the legal reforms, was the establishment of the Tax Appeals Tribunal (TAT) in 1997 under Article 153(2) of the constitution to settle tax disputes between taxpayers and UgandaRevenue Authority. vspecifically, the tribunal was formed to provide a mechanism for a taxpayer to appeal against any decisions undertaken by the Commissioner General of URA without taxpayers satisfaction (URA, 2004)

3 MOTIVATION & OBJECTIVES ØDespite, existence of this tribunal, the total amount of taxes held up in tax disputes in 2017 was UGX 1.1 trillion ( Approx. USD 289 Million) (Amamukirori, 2017). ØBefore the landmark Supreme Court ruling in 2017, between Uganda Revenue Authority versus Rabbo Enterprises Limited, most taxpayers had shunned the TAT to seek for tax dispute resolution at the High court. Ø This study sought to understand how operations of the TAT affect domestic revenue mobilization in Uganda To analyze the performance of TAT in settling tax disputes To identify facts of disputation in tax disputes lodged at TAT To identify gaps in the TAT Act that impede tax dispute resolution in Uganda.

4 Evolution and process of tax dispute resolution Internal review (URA) Decision Made Tax Appeals Tribunal External Review Decision made High Court Appeal to the High Court Appeal to the Court of Appeal Appeal to the Supreme Court Source: Author s construct

5 Data/Methods Data sources Analysis Administrative data on tax disputes ( ) obtained from office of the registrar, TAT Uganda Legal Information Institute-Finalized tax cases database. Key informant interviews Descriptive statistics: Performance of TAT. Qualitative analysis of finalized tax cases Document review. While, tax litigation consists of both civil and criminal matters, the study, only focused on the civil law tax matters (appeals from tax assessments) since the TAT can only exercise jurisdiction over civil matters. 5

6 PERFORMANCE OF TAT IN RESOLVING TAX DISPUTES Disposal of tax cases remains slow Lodged* cases Tax in dispute (UGX billions) RESULTS Finalized cases# Tax in dispute (UGX billions) Outstanding Cases at year end Tax in dispute (UGX billions) Average Growth(%) 25% 19.4% 38.5% Source: Author s computation using Administrative data form TAT * Includes only cases that reduce to formal plaints for TAT hearing. Figure includes pending cases from previous year # Includes tax cases finalized during a particular year but not necessarily lodged within that particular year

7 Type of cases lodged at TAT By Taxpayer type TAT is grossly inaccessible to small taxpayers Individual Cases Tax in dispute (UGX Billions) Corporation Cases Tax in dispute (UGX Billions) Average Source: Author s computation using Administrative data form TAT

8 Type of cases lodged at TAT By Tax head ( ) Tax disputes arise out of the VAT and Income tax laws Customs tax 12% Excise Tax 2% Others 12% VAT 45% Income tax 29% VAT Income tax Customs tax Excise Tax Others Source: Author s computation using Administrative data form TAT

9 Timeliness of Tax dispute cases Very few tax cases are finalized within 12 months of lodgment Cases finalized within 12 months Tax Amount (UGX Billions) Cases finalized beyond 12 months Tax Amount (UGX Billions) Total cases filed % cases finalized within 12 months % % % % % % % Average % Source: Author s computation using Administrative data from TAT

10 Outcomes of Tax dispute cases- By decision Majority of tax cases are finalized through Mutual consent and or are withdrawn Dismissed by Tribunal 13% Decision varied 13% Decision affirmed 24% Mutual consent 25% Withdrawn Decision varied 25% Mutual consent Withdrawn Decision affirmed Dismissed by Tribunal Source: Author s computation using Administrative data from TAT

11 Outcome of Tax dispute cases- By winner There seems to be no overt bias in the TAT ruling Cases in favour of URA Tax in dispute (UGX Billions) Cases in favour of taxpayers Tax in dispute (UGX Billions) Average Source: Author s computation using Administrative data from TAT

12 Appeals to the High court from TAT Heavy backlogs at the High Court deter appeals from TAT Number of cases Tax in dispute (UGX Billion) Average 1 Source: Author s computation using Administrative data from TAT

13 Facts of disputation in tax disputes Tax exemptions are a major source of Tax disputes Reasons for litigation Number of cases Tax exemptions related cases 11 Time barred cases 5 Excessive assessments by URA 9 Failure to comply with Section 15 of the TAT act (payment of 30 percent of the assessed tax or that part of the tax that is not in dispute whichever is greater) 3 Excessive exemptions lead to ambiguities in the items on the exemption schedule Inconsistencies between tax incentives and exemptions offered to investors and those specified in taxing Acts. Failure to meet burden of proof 1 Miscellaneous cases for judicialreview* 8 *a procedure by which a court can review an administrative action by a public body and secure a declaration, order, or award Source: Authors compilation based on finalized tax cases on the Uganda legal Information Institute website

14 Gaps in the TAT Act affecting tax dispute resolution Deposit of a portion of tax pending determination of objection (section 15) Limited jurisdiction* (Act has no power to award damages) Appeals process to the High Court ( Section 3) Mediation (Act unable to refer disputes for mediation) Judicial powers of the registrar- Act silent on judicial responsibilities of the registrar i.e. handling interim orders. Terms of appointment ( Section 6) *Damages measure in financial terms the extent of harm a plaintiff has suffered because of a defendant's actions. Damages are distinguishable from costs, which are the expenses incurred as a result of bringing a lawsuit and which the court may order the losing party to pay Mediation is a process in which parties to a dispute, with the assistance of a neutral third party(mediator) identify the disputed issues, consider alternatives and endeavor to reach an agreement. The mediator may have an advisory role on the content of the dispute and give expert advice on likely settlement terms. Source: Authors compilation based on Key informant interviews

15 Key Messages Over the last decade, tax disputes have been disposed off at a slow pace leading to a tremendous growth in the number of outstanding tax disputes. Majority of tax disputes lodged at TAT have been observed to emanate out of disputes linked to VAT and Income tax Acts, mainly filed by the large taxpayers. Most of tax disputes emanate out of tax exemption related issues, followed by excessive and or aggressive assessmentby URA. The gaps in the TAT Act slowing tax dispute resolution include mandatory deposit of 30 percent of the assessed tax pending final resolution of the objection, inability of the tribunal to award damages, lengthy appeals process at the High Court, inability of the TAT Act to provide for mediation andlimitedjudicialpowersof the registrar. Source: Authors compilation based on Key informant interviews

16 Policy Recommendations Mediation needs to be introduced in tax dispute settlement at TAT to reduce the escalating number of tax disputes finalized beyond 12 months of lodgment. Government needs to minimize the frequency of amendment of tax laws especially VAT and Income tax. The current jurisdiction of TAT requires to be expanded to enable the tribunal award damages to successful parties. Appeals process at TAT requires to be streamlined to allow appeals from the tribunal to lie straight to the Court of Appeal instead of the current practice where appeals from TAT lie with the High court.